EXHIBIT 10.7
Fourth Amendment to Security and Loan Agreement
(Accounts Receivable)
This Fourth Amendment ("Amendment") amends that certain Security and Loan
Agreement (Accounts Receivable) ("Security and Loan Agreement") with the
attached Addendum ("Addendum") both dated February 9, 1998, as amended (such
Security and Loan Agreement and Addendum and amendments herein referred to as
"Agreement"), by and between Imperial Bank ("Bank"), The ▇▇▇▇▇ Companies, Inc.,
▇▇▇▇▇ Engineering, Inc., ESI, Engineering Services, Inc., and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ &
Associates, LTD ("Co-Borrowers" and jointly and severally herein called
"Borrower"), and contains certain waivers by the Bank of the Borrower complying
with certain provisions of the Agreement as follows:
1. Events of Default: The following Events of Defaults have occurred in the
Agreement:
A. Pursuant to Section 8.a of the Addendum the Borrower is required to maintain
a Tangible Net Worth of at least $2,500,000 at 9/30/98. The Borrower did not
meet this covenant.
B. Pursuant to Section 8.b of the Addendum the Borrower is required to maintain
a ratio of total liabilities to Tangible Net Worth of not greater than 4.00 to
1.00 at 9/30/98. The Borrower did not meet this covenant.
2. Waivers
A. The Borrower has asked the Bank to waive compliance by the Borrower of the
above covenants for the above period. The Bank hereby waives compliance with the
above covenants for the period mentioned above.
B. The above waivers are specific as to contents and times, and other than the
waivers mentioned above this letter is not a waiver of any other rights or
remedies that the Bank may have pursuant to any agreement or law as a result of
any other violations past, present, or future of any agreement between the
Borrower and the Bank, and the Bank reserves all rights, powers and remedies
available to it.
3. The introductory paragraph of the Security and Loan Agreement is hereby
amended to read in full as follows:
"The Agreement is entered into between The ▇▇▇▇▇ Companies, Inc. ("Companies"),
ESI, Engineering Services, Inc. ("ESI"), and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ & Associates, LTD
("▇▇▇▇▇▇▇▇") (Companies, ESI and ▇▇▇▇▇▇▇▇ each a co-borrower hereunder and
jointly and severally herein called "Borrower"), each a California corporation,
and Imperial Bank ("Bank").
4. The heading to the Addendum is hereby amended in its entirety to read as
follows:
"ADDENDUM TO SECURITY AND LOAN AGREEMENT
BETWEEN THE ▇▇▇▇▇ COMPANIES, INC., ESI, Engineering Services, Inc., and ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ & Associates, LTD AS CO-BORROWERS, and IMPERIAL BANK
5. The introductory paragraph of the Addendum is hereby amended in its entirety
to read as follows:
"This Addendum is made and entered into as of February 9, 1998, between THE
▇▇▇▇▇ COMPANIES, INC. ("Companies"), ESI, Engineering Services, Inc. ("ESI"),
and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ & Associates, LTD ("▇▇▇▇▇▇▇▇") (Companies, ESI, and
▇▇▇▇▇▇▇▇ each a co-borrower hereunder and jointly and severally herein called
"Borrower") and IMPERIAL BANK ("Bank"). This Addendum amends and supplements the
Security and Loan Agreement. In the event of any inconsistency between the terms
herein and the terms of the Security and Loan Agreement, the terms herein shall
in all cases govern and control. All capitalized terms herein, unless otherwise
defined herein, shall have the meaning set forth in the Security and Loan
Agreement."
6. Paragraph 1 of the Addendum is hereby amended in its entirety to read as
follows:
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire on March
1, 2000, subject to Bank's right to renew said commitment in its sole
discretion. Any such renewal of the commitment shall not be binding upon
Bank unless it is in writing and signed by an officer of the Bank.
7. Paragraph 3.g of the Addendum is hereby amended effective 12/31/98 in its
entirety to read as follows:
9. Capital Expenditures. Make or incur obligations for capital expenditures
in excess of $1,650,000 in any one fiscal year.
8. Paragraph 3.h of the Addendum is hereby amended effective 12/31/98 in its
entirety to read as follows:
h. Lease Liability. Make or incur liability for payments of rent under
existing operating and capital leases of real property in excess of $2,150,000
in any one fiscal year or incur obligations for payment under new operating and
capital lease obligations in excess of $260,000 in any one fiscal year.
9. Paragraph 8.a of the Addendum is hereby amended effective 12/31/98 in its
entirety to read as follows:
a. Have and maintain a Minimum Tangible Net Worth (meaning the excess of all
assets, excluding any value for goodwill, trademarks, patents,
copyrights, organization expense and other similar intangible items, over
its liabilities, less subordinated debt) of not less than $2,400,000 from
FYE 12/31/98; increasing to no less than $2,600,000 from 3/31/99;
increasing to no less than $3,775,000 from 6/30/99; increasing to no less
than $4,900,000 from 9/30/99; increasing to $5,900,000 from 12/31/99 and
thereafter.
10. Paragraph 8.b of the Addendum is hereby amended effective 12/31/98 in its
entirety to read as follows:
b. Have and maintain a ratio of total liabilities to Tangible Net Worth
("Leverage Ratio") of not greater than 4.65 to 1.0 from FYE 12/31/98;
decreasing to 4.50 to 1.0 from 3/31/99; decreasing to 3.25 to 1.0 from
6/30/99; decreasing to 2.50 to 1.0 from 9/30/99; decreasing to 2.00 to
1.0 from FYE 12/31/99 and thereafter.
11. Paragraph 8.c of the Addendum is hereby amended in its entirety to read as
follows:
b. Have and maintain a Current Ratio of not less than 1.00 to 1.0 from FYE
12/31/98; increasing to no less than 1.10 to 1.0 from 6/30/99; increasing
to no less than 1.20 to 1.0 from 9/30/99 and thereafter. Current Ratio
shall mean Current Assets divided by Current Liabilities.
12. Paragraph 8.p of the Addendum is hereby amended in its entirety to read as
follows:
p. Subordination. Cause the following dollar amounts due to the named note
holder(s) to be subordinated to Bank's line of credit by subordination
agreement(s) acceptable to Bank:
▇▇▇▇▇ ▇▇▇▇▇ Educational Trust $ 132,000
▇▇▇▇ ▇▇▇▇▇ Educational Trust $ 11,000
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Educational Trust $ 33,000
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
Housing Trust $ 48,000
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ Housing Trust $ 86,000
▇▇▇▇ ▇▇▇. ▇▇▇▇ Housing Trust $ 53,000
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Sub-total $ 363,000
▇▇▇▇ ▇. ▇▇▇▇▇ $1,210,177
▇▇▇▇▇ ▇. ▇▇▇▇ $ 127,815
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ III $ 700,000
----------
Sub-total $2,037,992
▇▇▇▇▇▇▇▇ notes $ 266,752
▇▇▇▇▇▇ notes $ 266,752
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Sub-total $ 533,504
▇▇▇▇ ▇▇▇▇▇ note
for interest payable $ 131,680
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Total Subordinated Debt $3,066,176
13. A new ▇▇▇▇▇▇▇▇▇ ▇.▇ is hereby added, to read in its entirety as follows:
8.q. If by June 30, 1999 the Borrower's planned initial public offering
("IPO") has not occurred and funded, with minimum net proceeds of
$12,000,000, then Borrower is to obtain new equity or subordinated debt by
July 31, 1999 in an amount sufficient, after giving effect for the new
equity or subordinated debt, to achieve a minimum Tangible Net Worth of
$3,775,000, and a Leverage Ratio of no greater than 3.25 to 1.00,
retroactive to June 30, 1999.
14. Paragraph 10 of the Addendum is hereby amended in its entirety to read as
follows:
10. Fees and Interest: The Line of Credit Loan Account shall bear interest
at the rate which Bank has announced as its prime lending rate ("Prime Rate")
which shall vary concurrently with any change in such Prime Rate, plus the
Applicable Prime Rate Margin. The Applicable Prime Rate Margin (as set forth
below) will be determined by the Bank after review of the Leverage Ratio of the
Borrower as follows:
Leverage Ratio Applicable Prime Rate Margin
----------------------------------------------------
4.65:1 to 3.75:1 P + 2.75%
3.74:1 to 3.00:1 P + 2.50%
2.25:1 to 2.99:1 P + 2.00%
1.50:1 to 2.24:1 P + 1.00%
1.49:1 and under P + .50%
Bank will determine the Applicable Prime Rate Margin for each fiscal quarter on
the forty-fifth (45 th ) day following the last day of each quarter of the
immediately preceding fiscal quarter by reference to the compliance certificate
delivered to the Bank pursuant to Paragraph 8.h. with respect to the immediately
preceding fiscal quarter, beginning with the quarter ending 12/31/98,
A loan fee of $22,750 is due, payable $15,000 upon execution of the Fourth
Amendment to this Agreement, and payable $7,750 on September 30, 1999. A
documentation fee of $250 shall be due upon execution of documents. A fee of
.50% p.a. on the unused portion of the commitment shall be due quarterly in
arrears, commencing with the quarter beginning January 1, 1999 and ending March
31, 1999 on the last $500,000 of the commitment.
Interest shall be computed at the above rate on the basis of the actual number
of days during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation purposes be considered one
year. The default rate shall be five percent per year in excess of the rate
otherwise applicable.
If any installment payment, interest payment, principal payment or principal
balance payment due hereunder is delinquent twenty or more days, Borrower agrees
to pay Bank a late charge in the amount of 5% of the payment so due and unpaid,
in addition to the payment; but nothing in this paragraph is to be construed as
any obligation on the part of Bank to accept payment of any payment past due or
less than the total unpaid principal balance after maturity. All payments shall
be applied first to any late charges owing, then to interest
and the remainder, if any, to principal.
15. Companies hereby acknowledges and agrees that ▇▇▇▇▇ Engineering, Inc.
("Engineering") has merged into Companies, and Companies has assumed all
obligations of Engineering under the Agreement and all other loan documents
executed by Engineering in favor of Bank.
16. Except as provided above, the Agreement remains unchanged.
17. This addendum is executed by and on behalf of the parties as of March 5,
1999.
THE ▇▇▇▇▇ COMPANIES, INC.
BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇, President
Title
ESI, Engineering Services, Inc. ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ &
ASSOCIATES, LTD.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇ BY: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇ ▇▇▇▇▇, President ▇▇▇▇ ▇▇▇▇▇, President
Title Title
IMPERIAL BANK, "BANK"
BY: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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Title, Vice President